Winnipeg Free Press

Winnipeg Free Press (Newspaper) - September 21, 2021, Winnipeg, Manitoba C M Y K PAGE B6 BUSINESS BUSINESS EDITOR: SHANE MINKIN 204-697-7308 ● BUSINESS@FREEPRESS.MB.CA ● WINNIPEGFREEPRESS.COM B6 TUESDAY SEPTEMBER 21, 2021 Canadian and U.S. stock markets fall sharply TORONTO — Canada’s main stock in- dex suffered its biggest daily decline in nearly eight months while U.S. markets also tanked amid heightened anxieties about emerging Chinese risks, a global economic slowdown and impending Federal Reserve action. The S&P/TSX composite index closed down 335.82 points to 20,154.54 after hitting an intraday low of 19,932.19. In New York, the Dow Jones indus- trial average was down 614.41 points at 33.970.47. The S&P 500 index was down 75.26 points at 4,357.73, while the Nas- daq composite was down 330.07 points at 14,713.90. Investors are wary of an economic slowdown in China, with concerns Mon- day over the potential insolvency of Chinese property developers, particu- larly Evergrande, said Craig Fehr, in- vestment strategist, Edward Jones. The fear is that a potential collapse there could send a chain reaction through the Chinese property-develop- ment industry and spill over into the broader financial system, similar to how the failure of Lehman Brothers inflamed the 2008 financial crisis and Great Recession. “All of this is... coming at the same time that the Fed is looking to dial back some of the stimulus so that’s adding a little bit to the indigestion today,” he said in an interview. Fehr said the market movement isn’t a sign of broader change in direction for the North American or global econ- omies. Monday’s Canadian election and the U.S. debt ceiling debate likely also contributed to the short-term anxiety, although he said expectations are for the Trudeau Liberals to retain power with a minority government. Markets have been a victim of their own success with equity markets surg- ing over the past year, approaching a 20 per cent rise before the recent down- turn, he said. Periodic setbacks are normal even for the strongest equity markets and the market hasn’t seen the typical an- nual corrections in at least a year. “I don’t think this is going to snowball into something significantly severe or prolonged. But I do think it’s a condi- tion that we’ve been expecting for some time,” Fehr said. Monday’s market losses evoke more emotion from investors who have been spoiled by the strong gains, but the de- creases probably feel worse than they really are, he added. “The first thing investors can do on a day like this is not take the bait. Put a different way, don’t panic.” All 11 major sectors on the TSX were down on the day, led by health care, en- ergy, industrials, financials and tech- nology. Health care dropped five per cent as cannabis producer Canopy Growth Corp. loss 7.5 per cent, followed by Au- rora Cannabis Inc. down 7.3 per cent and Tilray Inc. off 6.8 per cent, Energy lost 2.8 per cent on lower crude oil and natural gas prices with Enerplus Corp. and MEG Energy Corp. down 4.8 and 4.7 per cent, respectively. The November crude contract was down US$1.68 at US$70.14 per barrel and the October natural gas contract was down 12 cents at US$4.99 per mmBTU. A 23.6 per cent decrease in New Flyer Industries Inc. shares pushed Industri- als down 1.8 per cent while Hut 8 Min- ing Corp. lost 12.3 per cent to drag tech- nologies 1.5 per cent lower. Lower copper prices pushed materi- als down even as gold was one of the few assets to gain ground. The December gold contract was up US$12.40 at US$1,763.80 an ounce and the December copper contract was down 13.2 cents at US$4.11 a pound. Fehr said it’s not unusual for cyclical investments such as energy, industrials and financials to be hardest hit on days like Monday, while the loonie is a cycli- cal currency that underperforms when the global growth outlook weakens and crude prices fall. The Canadian dollar traded for 77.95 cents US compared with 78.61 on Fri- day. — with files from The Associated Press — The Canadian Press ROSS MAROWITS Supply chain issues rattle NFI Group Bus maker downgrades performance outlook, gets hammered by investors I N the unforgiving world of capital-ist economics NFI Group did the unthinkable — it had to declare that this year it would not grow as much as it previously forecast it would. After providing guidance of a certain level of growth this year, the Winnipeg-based bus maker announced late Friday afternoon the supply chain disruption was even worse than it thought and said it would be walking back its previous performance forecast for the year by about 20 per cent. The market punished the company on Monday, sending its stock price down 23.6 per cent. It was perhaps small comfort for the leadership at NFI that both the TSX and the Dow Jones Industrials average endured sharp drops on Monday. NFI (formerly New Flyer Industries) is the market leader in North America and the U.K. (the latter thanks to its ownership of the famous double-decker bus company Alexander Dennis Ltd.) in both heavy duty urban transit buses and highway motor coaches, but it’s the only one of its competitors that is publicly traded. Therefore it is obliged to disclose such significant operational issues. In a note to clients, Cameron Doerk- sen, an analyst with National Bank of Canada Financial Market, said, “We suspect NFI’s largest competitors in North America are equally impacted.” The company’s statement after the close of trading Friday said it experi- enced a rapid deterioration in availabil- ity of all sorts of critical components caused by increasing global supply chain challenges. Rather than tie up cash starting production of vehicles that it might not have the parts to complete, it decided to scale back production across the board. Paul Soubry, the company CEO, said, “In response to these disruptions, we have made the prudent, yet difficult, decision to temporarily reduce new ve- hicle input rates through the additional idling of certain facilities and adjust- ing production in others. These tempo- rary actions will assist in controlling costs and preserving cash flows until supply availability and delivery reli- ability improve.” Analysts were almost unanimous is seeing the move as a temporary blip, although the expectation is that the is- sues will persist well into 2022. Doerksen said, “NFI’s decision to slow production to avoid building work in progress inventory (and using cash) is the right one, and we view these supply chain issues as temporary and largely out of the company’s control.” Chris Murray of ATB Capital Mar- kets, said, “While we anticipate that the impact of the pandemic will result in some choppiness in results over the near-term, longer-term we see the company having a dominant position in electric vehicles in its class for several years.” But the abruptness and severity of the cutback caught some off guard. In a note to clients, Murray said, “The announcement comes as a sur- prise, particularly given management reaffirmed confidence in both its supply chain and ability to meet prior full-year guidance with its second quarter results on August 4th.” However, all things considered, the only real surprise, perhaps, is that NFI was so transparent as to admit it. In a story in Forbes magazine this month, it said, “Massive dislocations are present in the container market, shipping routes, ports, air cargo, truck- ing lines, railways and even warehous- es. The result has created shortages of key manufacturing components, order backlogs, delivery delays and a spike MARTIN CASH MELISSA TAIT / WINNIPEG FREE PRESS FILES The manufacturing line at NFI. Rather than tie up cash starting production of vehicles it might not have the parts to complete, the bus maker decided to scale back production across the board. in transportation costs and consumer prices. Unless the situation is resolved soon, the consequences for the global economy may be dire.” Shortages of things like computer chips and printed circuit boards have created log jams in the production cycles of everything from automobiles to children’s toys. D OERKSEN pointed out the fact that NFI’s U.S. business — by far its largest market — is depend- ant on the Buy America regulations that require more than 70 per cent of its components to be sourced in the U.S., further limiting its ability to come up with workarounds when there’s a shortfall in some parts. The company said its actions will result in significant cash on hand in the fourth quarter. “In addition,” Soubry said, “We are fortunate that the majority of the vehicles impacted by these disruptions will not result in lost sales as most are contractually sold and are now planned for delivery in 2022.” Many analysts lowered their target price on the stock for this year, but not all of them. One of them, Jonathan Lamers of BMO Capital Markets, said, “While we expect the market to react nega- tively to the guidance cut, we believe parts shortages are a transitory recovery pain and our target price is unchanged.” martin.cash@freepress.mb.ca WAYNE GLOWACKI / WINNIPEG FREE PRESS FILES CEO Paul Soubry: ‘prudent, yet difficult, decision.’ B_06_Sep-21-21_FP_01.indd B6 9/20/21 7:45 PM ;